THE US-CHINA ESCALATORY SPIRAL

The U.S. and China have embarked on an escalatory spiral that could lead to disaster for both. Trump’s  latest attack have convinced the Chinese leadership that the Trump administration is seeking to humiliate China and wreck its economy. China has now decided to fight back. It imposed an across-the-board 84% increase on U.S. exports, hitting some $ 143.5 billion of revenue for American companies. It also placed new restrictions on exports of some strategically important minerals, added some U.S. companies to its list of unreliable businesses, and announced an anti-trust investigation into DuPont.

In its official response, the Chinese government positioned itself as defender of the globalization status quo. It characterized  the U.S. aim as “using tariffs to overturn the existing international economic order, placing U.S. interests above the common good of the international community, and sacrificing the legitimate interests of other countries in service to American hegemonic interests.”

Washington believes that China’s economy is so fragile it has no leverage in the economic conflict. Cut off from the U.S. market, they think, China will simply flood other exports markets and alienate Europe , Japan, and the Global South in the process. Such overconfidence may lead to serious miscalculations as the fighting intensifies.

The United States and China now find themselves locked in confrontation. The main force restraining economic warfare up to this point was simply the failure of American measures to undermine the Chinese economy. We have now blown past that condition.

Where might the conflict go from here? The most likely outcome of a hard decoupling between the U.S. and Chinese economies is terrible disruption to global supply chains. Many companies will simply shut down, but large smuggling networks will also emerge as Chinese producers seek access to the American market and American producers cast about for crucial inputs that are suddenly gone. Some Chinese production will move to the Latin American countries largely spared on liberation day.

That will set the stage for further escalation. The United States will seek to suppress smuggling. China will target strategically important goods to deny them to American producers. Both sides will start to lean on third countries to maintain their influence, giving rise to the possibility of proxy conflict. Most concerning, both sides increasingly will be tempted to impose pain on the other by striking more directly at their national security sensitivities.

China’s general practice is to meet each escalation from the United States with a proportionate response. It also has strong incentives to avoid unhinged reactions since it wants to use aggressive American measures against other countries to shore up diplomatic relations in the region and with Europe.

The same cannot be said of the Trump administration. Trump himself seems fixated on extracting a performance of submission to which Chinese leaders will never acquiesce. As his frustration mounts — and particularly if the Chinese economy does prove resilient to his assault — he will become more and more receptive to the national security team he built. In contrast to his own instincts, Trump’s top military and economic advisers are almost without exception committed to confrontation with China.

The reported contents  of the Pentagon’s Interim National Defense Strategic Guidance suggest how easily economic warfare could slip toward military conflict. Defense Department leaders may seize on the collapse in U.S.–China relations to pursue the crash military buildup in Asia they have defined as “the cardinal objective of US grand strategy”.

A single misstep around Taiwan or in the South China Sea could end in catastrophe.